The Co-op is fast becoming my go-to supermarket for good, inexpensive Champagne . There are, of course, other wines that fizz, but Cham...

Thursday, 21 April 2011

Albany Vintners - Fine Wine Merchants in Cambridge

As a company director in marketing services, I am generally almost as interested in the business side of promoting, branding and selling wine as I am in the wines themselves.

There are, of course, almost as many business models for selling wine as there are wine regions - from the mass-market supermarket turf war, to internet-only retailers, independents and, at the top end, fine wine traders.

This latter is something I know very little about, for a number of good reasons - I certainly don't have the budget to buy seriously expensive fine wines (either for consumption or investment) and fine wine traders, by definition, tend to be rather niche operations about whom little gets written.

So I was fascinated to discover recently that Cambridge has its own fine wine merchant, Albany Vintners, and the other day arranged to meet founder and now one of two directors of the company, Marcus Edwards, to learn a bit more about what the company does.

A bit of research before the meeting gave some hints as to why I had never heard of Albany previously - the market for really top wines is relatively small and whilst there may be a certain number of Cambridge millionaires who can afford to drink First Growth Bordeaux on a regular basis, in practice the market for fine wine is global and anyone who takes themselves seriously needs to operate on a global basis and cannot survive simply by selling to a local market of passers-by.

Albany's warehouse

This is very different set-up from a local independent wine merchant who will provide you with some for Sunday lunch when the in-laws are visiting, and there was certainly no wine to be seen during my visit (it is all stored in specialist temperature-controlled warehouses somewhere just outside London).

Marcus explained that he had got into to wine trading beginning his career with Farr Vintners, a multi-award winning fine-wine merchant, and then qualifying as a management accountant and running the company's commercial finance function for several years.

This is about as good a training as anyone wanting to set up their own business can have - combine the sector knowledge with an understanding of how the money is actually made and any sensibly ambitious person will be ready to go it alone within a relatively short space of time.

So, after 10 years' experience with Farr Vintners and with a relatively small amount of money in his pocket (in business start-up terms), Marcus set up Albany Vintners in London as a one-man band. After a couple of years' successful trading, he recruited a former colleague to join him and then, as part of a lifestyle decision when family came along, decided to move out of the big city and into one of the villages around Cambridge, setting up offices on the edge of the city where he now employs a support team of three dealing with the company's integrated sales and stock management system, the logistics of transporting fine wine around the globe and the general admin of running a business.

The key functions in the business, that of buying wine at one price and selling it on at a sensible margin, are handled by the two directors with Marcus focusing mainly on the sales side and partner Elaine doing most of the buying.

This, then, is a trading hub rather than a retail outfit, with fine wine being the commodity (in Marcus' own words) being traded - a distinction worth drawing is that the company does not speculate, that is to say, they do not buy and hold wine for investment purposes but only to sell on.

As we had now got down to the brass tacks of business, I asked Marcus to explain how the company makes its money and what he saw as Albany's unique success factors which could not be replicated by a competitor wishing to emulate its success.

The first two aspects he mentioned were sensible enough - buy as cheaply as possible and sell on profitably as quickly as possible. In a trading business with very short time horizons, it's all about quick turnaround of stock - in fact, it felt much closer to the high street retail model than high-end.

Speed of turnover is, of course, the basis of any good trading business, but where Albany further differentiates itself from other fine wine merchants is in the levels of stock they hold and their in-depth knowledge of condition of the stock - this last point required a bit of explanation to the uninitiated like me and also a quick demonstration on the computer.

Firstly, many fine wine merchants hold very little stock themselves and tend to sell wine through a time-consuming process of agreeing a sale, then sourcing the wine and finally getting it shipped over to the buyer - which can take several weeks.

By contrast, Albany has invested in maintaining high levels of stock so that it can ship as soon as the order is finalised - this speed of delivery not only keeps impatient buyers happy, it also builds credibility that the company can actually provide what it advertises as on offer.

Secondly, whilst almost every bottle of wine on a supermarket or wine merchant's shelf is in pretty good condition - that is, the label is unmarked and undamaged, and the foil or plastic film over the cork is unblemished, for fine wines that may be transported around quite a bit before being sold or lie in damp cellars maturing for years and decades, the chances of picking up some superficial markings, scratches or even a touch of mould on the label are rather higher.

As long as the wine has been stored appropriately, these will have no effect on the wine inside the bottle, but they are considered unsightly - especially if the wine is being purchased as a lavish gift to say as much about the status of the giver as the importance of the recipient.

Technology developments in the last 10 or so years have made it increasingly practical to take photos of the wine itself and email these to a potential customer who can then choose whether or not to accept any bottles in less than 100% mint condition.

It sounds simple, so you might think everyone would do it - apparently not, as it is somewhat time-consuming and expensive.

﻿

A case of Petrus, some labels
are marked (top row)

﻿ As Marcus explained, the company's warehousing supplier in Weybridge provides a dedicated photographer who first removes each bottle from its packaging, lines them up in a professionally-lit studio in the warehouse, then photographs not just the 12 bottles in the case, but also the case itself. This photo is then uploaded into the stock management system, along with all the other data about the wine (including provenance, critics' scores and price), so that when an order comes through, an image of the exact bottles of wine to be sold can be sent to the customer.

This is all highly labour-intensive and is paid for, indirectly, by Albany through the cost of their warehousing, but gives the company an edge over other merchants.

None of these points in themselves - the entrepreneurship to buy and sell wine profitably, the availability of stock, the sophisticated sales and stock management system and the attention to detail in goods receipting - would be particularly difficult to copy to someone with business nous, contacts and deep pockets.

However, all taken together, and with the reputation for reliability that they engender, they start to create a virtuous circle which would becomes difficult to compete with.

The story of fine wine prices over the last few years has been something of a one-way bet, with the rise in first Russia and more recently China leading to ever-higher prices for the limited quantities of fine wine that Bordeaux and Burgundy produce; Marcus explained that he finds the Chinese the easiest of the eastern markets to deal with for a number of reasons, mostly to do with Britain's historic trading relationships with China (including its purchase of Hong Kong for 150 years) which means he finds the Chinese way of doing business, whilst not without some challenges, at least reasonably familiar, even if their investment decisions are not always based on the most obvious of principles; there are various examples of wines whose names are easy to pronounce, or which sound either familiar or "lucky" when translated into Chinese and this can and indeed does drive prices far more than the quality of what is in the bottle.

The other thing that drives prices is critics' scores - Jancis Robinson has highlighted this issue in a number of recent posts (see here) on the 2010 en primeur process, but the key influence of prices is the US critic Robert Parker - as we sat there, neither of us could think of any comparable figure in any other market who has such an influence on pricing, which is probably more of a comment on the unregulated nature of the market for fine wine (that any one person can dominate it so much) than on the influence of Parker himself.

I finished off by asking Marcus what his own fine wine of choice is - with prices for Bordeaux reaching ever higher levels, he prefers and finds more value in Burgundy these days. The reasons for this are initially surprising, but obvious on reflection - Bordeaux is a relatively straightforward market to understand for anyone who takes the time to learn the names of the 60 or so Chateaux in the 1855 classification. Moreover, the Chinese preference is for big, powerful wines.

By contrast, Burgundy is a much more complex region to learn and understand and its wines are slighter and more subtle - traditionally, Japanese fine-wine buyers favoured Burgundy over Bordeaux, but even without the devastation of recent events, their economy has been in doldrums for so long now, that they have not been buying fine wines in significant enough quantities to move prices upwards in the way the Chinese have been influencing Bordeaux.

After chatting with Marcus for well over an hour, I realised we had covered a whole range of fascinating topics - from the big-picture issues of what makes China tick and how the path of oil and mineral prices affects Russian demand for fine wine, to the minutiae of warehousing practices - but had hardly discussed any actual wines.

But that final piece also fitted into place with a little hindsight; to survive and thrive in any trading business - whether it be it fine wines or tins of baked beans - you have to take a detatched and unemotional view of the product and focus relentlessly on the business of buying and selling professionally.

And as the property-trading programmes that were so popular just a few years ago always advised, you have to know your market, manage your costs and above all not get emotionally attached to the thing you are selling.